8/13/2010

The Economic Impact from a California Home Sale

While at a meeting yesterday, I heard a statement from another attendee that somewhere between 30-50% of California's job market has been directly affected by the change in the housing market in this state--the local closings of some long-established independant businesses and the empty storefronts are a testimony to that.

When the prices of the housing market were out of reach of many buyers, I frequently heard and read statements about what a good thing it would be if housing prices dropped "back where they should be." But nothing happens in a vacuum, and when housing prices fell, so did the rest of the economy. The activity generated through the sale of one residential property conducted through a REALTOR® in California may impact up to 40 different occupations, starting with the buyer's lender and its employees and underwriters, appraisal services, escrow officer and affiliated company, title company representatives and employees, home warranty company, MLS employees, all the internet and print advertising services for marketing the property and which help to attract the buyer, accountants and attorneys connected to the transaction, home stagers whose services may be critical to helping sell the property at current market price, insurance agent, messenger companies, home construction contractors, moving truck services, property managers, car rental companies, to name some of those closer to the "ripple" effect. All of these occupations serve vital connections to a real estate transaction, and moreover, a Realtor usually has requirements to assist or coordinate with many of these participants, each of which has its own job to do. Without a home sale, many people are literally "out of the swim".

Information reported in 2009 from National Association of Realtors, Bureau of Economic Analysis and Harvard Joint Center for Housing Studies shows that when one home is sold in California, the income generated from real estate related industries $49,383.00, the additional expenditures on furniture, paint, and applicances is $5,331.00. Also, there is addtional economic multiplier impact as greater spending on charity, sports events and restaurants estimated to be $26,263.00. The new home production value, estimated at one new home constructed for 8 existing home sales,  is $68,588.  The total income derived from the sale of one California home (report used an earlier CA median price of $548,700--currently $311,950 for a single family home as of June, 2010) is $149,564. The National Association of Home Builders has estimated that nationally, approximately $8,900 is spent on home furnishings and improvements within 12 months following a home sale. In other words, what happens to the housing industry happens to a lot of people.

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